In defense of CIO’s who outsource

In defense of CIO’s who outsource

I read an article recently that was critical of a local CIO that made the decision to outsource the IT department of his corporation. Although I agree that the optics are poor during this downturn the alternative is not as simple as saying “Alberta first”. I wish it was but the imperative to cut costs, especially for non-core functions such as IT, are overwhelming. I am not surprised at all by the move, in fact, I am astounded that it took so long to get there. This may be a case of too little too late. IT, like most technology dependent functions, is undergoing a massive disruption due to the ever increasing rate of technological advance and CIO’s who do not exploit this trend to the fullest are doing their companies a disservice. If IT teams are still using internal email services, why have they not moved to one of the cloud vendors at this point? The same goes for ERP services in mid to large organizations, unless you are a massive corporation with tens of thousands of employees and a worldwide footprint, why are you not moving to a cloud based system? Still running data centers? Why?

The reason I hear for not doing this is that it is risky. OK, valid point, but what is the risk of doing nothing in organizations impacted by the low oil prices? That should be your burning platform right there. Second reason is usually security, OK good point also, segregate what you believe absolutely needs to stay internal for security or regulatory reasons and get rid of the rest. Be drastic here, no half measures. Patton once repeated: “L’audace, toujours l’audace”, loosely translated it means, be bold, timid measures will not get you where you need to be. There is a time to be conservative and a time to be bold. Oil under $50 requires new ideas, the ones that got you here in the first place will not get you out. I am not advocating throwing caution to the wind and heading into the unknown without a plan. The technologies that facilitate the move to external IT operations are tried and true at this point and several organizations exist that can help the move, some very good ones locally. It can be done.

The role of IT is changing, scratch that, has changed. Daily operations and maintenance are not value added activities and can/should be automated and the risk transferred externally. The current role of IT is to bring the human creativity and relationship touch to the technology function in order to add value to the bottom line of the business. Internal IT teams in mid to large organizations should be composed of strategists and visionaries, high value architects and relationship managers, PMO oversight and service/vendor management, the rest should be transferred to external providers. For very large organizations the mix can change due to the complexity of running multi-national organizations but the reality of running daily operations does not differ, get out of it as much as possible.

In the end it is about shareholder value. That is the ultimate “raison d’etre” in our current system. In public organizations the same holds true, the shareholders are you and I and we should also demand the best value.

1 Response

  1. Dean Webb says:

    “Shareholder value”: code words for externalizing costs and risks, damn the long-term consequences. I’ve seen the impact of handing over IT functions to staff that have no direct stake in productivity, performance, or customer satisfaction. The contract with the outsourcer may look fine to everyone at the table, but in practice, there may be charging structures that the outsourcer is clever enough to include that eluded the savvy of the customer’s purchasing and legal teams. Even worse, what if the outsourcer also owns the intellectual property associated with design and architecture work? That means, terminate the relationship and the outsourcer takes all his toys with him, leaving the customer at substantial risk for maintaining business continuity.

    Then there’s the matter of the outsourcing staff actually being made up of sufficient quality to handle operations. It’s a race to the bottom with wages – all hail the shareholder value! – and that means the dirty secrets of forged resumes and cheated credentials plague the staff hired for the contract. And, again, what incentive do they have to be proactive about anything? They’re like sign painters that don’t correct a customer’s grammar: why bother if the customer doesn’t care and if the customer does care, then the sign painter gets to paint another sign because, after all, the customer did pass off and accept the bad grammar on the first sign and is therefore responsible.

    Why all these caveats? Because in a world of externalizing costs and risks for “shareholder value”, that outsourcer is trying to do the exact same things to its customers. It has massive incentives to pass those risks and costs right back to the customer, after extracting its own profits from the deal.

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